05/01/2017

Just say no to the 15% rate for income from pass through tax entities

Last summer the Tax Foundation, a think-tank sympathetic to Republican priorities, estimated that a 15% rate on pass-through income would cost $1.5trn in lost tax revenue over a decade. And there is no evidence that the lower rate would spark enough economic growth to pay for itself, nor that it would spark much growth at all.

The Tax Foundation, like Republicans in Congress, prefers to look at tax cuts through “dynamic scoring”—this year’s assumptions about increased growth become next year’s assumptions about increased tax revenue. Even using this method, the foundation lowered its ten-year estimate for lost pass-through income to a cost of $1.2trn. And that extra $300bn in tax revenue comes from a precarious assumption: that lower taxes will encourage businesses to buy more machines, making workers more productive.